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'What are 1099 forms and how are they filed?' with Hector Garcia | QuickBooks Payroll - YouTube

Channel: QuickBooks

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- What is a 1099?

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In this video we're gonna be talking about 1099s,

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especially within the context of independent contractors.

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Which are not considered to be employees of the business

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but receive compensation for their work,

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just like employees do.

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Hi everyone.

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I'm Hector Garcia.

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I'm a CPA, QuickBooks Consultant and Business Owner.

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I'm a big fan of Intuit QuickBooks,

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and I'm partnering with them

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to produce this video series about payroll.

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In fact, I have an entire YouTube channel where I have tons

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of videos about QuickBooks, accounting, tax

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and a bunch of important things for small businesses.

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Hit the like button. (clicking sound)

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If you're interested in seeing more videos

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with these topics.

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Today, we're gonna be talking about form 1099-NEC,

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which is a very important form

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for both you and your contractors.

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NEC stands for Nonemployee Compensation

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and the form 1099-NEC is how businesses report to the IRS,

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the compensation paid

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to the independent contractor during the tax year.

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And if they're not filled out correctly or timely

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there could be costly consequences,

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penalties for the business.

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And additionally, if the independent contractors themselves

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do not report that income to the IRS,

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there could be issues for the contractor as well.

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Every year, around January,

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the businesses will submit a 1099-NEC to the IRS

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and give a copy to their contractors.

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The reportable annual threshold is $600.

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So if an independent contractor is paid less than that

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during the entire year, it is unlikely

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that they will get a 1099-NEC form from that business.

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So what's on the 1099-NEC?

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They contain six important pieces of information.

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First, you've got the payers company name,

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the payer's company address, the payers tax ID or EIN.

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Then we're gonna have

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the recipient's social security number,

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if the contractor happens to be an individual

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or an EIN if the contractor is a business.

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It also contains the total compensation paid

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to the contractor during the tax year.

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And also if there's tax withheld on those payments

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that will be reported as well,

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but that's very rarely used.

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It's important to note that there are many different types

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of form 1099s out there.

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There is 1099-MISC or 1099 miscellaneous,

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1099-C, 1099-B, 1099-K, 1099-DIV,

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1099-G and others.

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These additional 1099 forms report other types of income

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such as rental payments, cancellation of debt,

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interest, dividends and unemployment benefits.

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In many cases that could be taxable income

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to the person that receives it.

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Now let's talk about the right process to pay and report

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1099s for contractors as a small business,

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because there are several steps involved here.

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First, make sure your contractor fills out form W-9.

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This is a formal document,

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where the contractor provides the business,

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their legal name and tax information.

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It is recommended that you do not make a payment

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to the independent contractor until you receive

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that W-9 form, especially when the cumulative

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of amount of the year reaches $600.

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It is recommended to also have a legal contract

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that underpins the relationship between the contractor

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and the business, that lays out the payment terms

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independence between the parties,

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culmination of the contract with dates

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and responsibilities under the contract.

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Make sure to seek help from an attorney on this matter.

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Next, you may pay your contractor

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using whichever method you prefer,

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cash, check, direct deposit,

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cash transfer apps, et cetera.

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Your options include here,

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using payroll software like Intuit QuickBooks.

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Make sure you keep strong records

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of when and how these payments were dispersed.

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If the W-9 contains a voluntary withholding

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or you have received instructions

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from the IRS to withhold money from those payments,

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make sure you keep that in mind

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before actually issuing those payments.

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And finally, you will want to fill out a form 1099-NEC

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for each contractor

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and report the total compensation for the year.

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Now that you've filled out a 1099-NEC

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let's talk about how to file it

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or report it to the IRS.

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There are two ways to do this,

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you can do it via U.S. postal mail

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or electronically using E-filing.

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E-filing is typically the easiest

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and fastest way to report your 1099s.

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If you're a QuickBooks user

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you may already be a fan of E-filing,

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as QuickBooks allows users to auto-import

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those details from the contractors into those forms.

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And also users can print

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and send those copies to the contractors,

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so they can submit it to the IRS, timely.

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Additionally, if you use QuickBooks Payroll,

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the first three 1099 forms are actually free.

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Now that you have a better understanding of 1099s,

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you're better equipped

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to handle your contractor's tax information.

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I would like to quickly summarize a few best practices.

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One, collect your contractor's information

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using the W-9 form early on

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to avoid the stress of the deadlines.

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I suggest that you make it a requirement to

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get a W-9 form filled out and signed prior

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from making the first payment to the contractor.

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Even if the dollar amount under $600.

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That should help speed up the process.

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Make sure to add in your calendar

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the important dates related to any tax

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or form submission deadlines.

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Three, when possible

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avoid paying the contractor in cash.

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Try to use a check or a digital form of payment

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to leave a paper trail,

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that will make the process easier

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when reporting those 1099s at year end.

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Four, keep good records of who you are paying

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and for what purpose.

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This is where having a great bookkeeping system

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like QuickBooks could help immensely.

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Five, leverage your bookkeeping system

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to electronically file these forms.

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For example, QuickBooks has an add-on service

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that takes all your contractor and payment information

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and automatically generates the forms for you

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to get them ready for electronic filing.

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Again, I'm Hector Garcia.

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And thanks for joining me in this video.

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&#39;What are 1099 forms and how are they filed?&#39; with Hector Garcia | QuickBooks Payroll - YouTube

'What are 1099 forms and how are they filed?' with Hector Garcia | QuickBooks Payroll - YouTube